Apple has dusted the cobwebs off of Apple TV with a new software upgrade that introduces a redesigned user interface, which is intended to make it easier to play favorites. iTunes 9.0.2 was released in conjunction with the update.

Apple TV 3.0 has a redesigned main menu that adds shortcuts to recently rented or purchased movies. TV shows, music, podcasts, photos and YouTube are also front and center.

In addition, iTunes extras and iTunes LP content can now be played on the Apple TV in full screen. Genius mixes and Internet radio can now be played through home theater systems. The iTunes upgrade adds HE-AAC playback and encoding.

I still wonder when Apple will start a subscription service. For the moment, my colleague Harry McCracken has largely forsaken his Apple TV for a Roku, because his Roku gives him unlimited content through Netflix.

Apple TV is a nice device, but it is not, as Harry has stated, “an iPod-like transcendent hit.” I’m sure it would work well paired with one of those snazzy new 27″ iMacs, but very little (other than iTunes synchronization) differentiates Apple TV from its competitors. How about it, Steve?

There has been rumors abound about Apple getting into the TV business, and selling an all-in-one unit. I would be happy to forsake a box for a TV that has Apple software built in. My tiny Manhattan living room doesn’t have much space for more stuff.